Objective reason - AIFMD Provision: Difference between revisions

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An objective reason is used un {{aifmdprov|21(11)}} as the grounds for delegating safekeeping functions of a {{aifmdprov|depositary}}. What this means discussed in the recital to the [[AIFMD Delegated Regulation]] (sigh):
An objective reason is used un {{aifmdprov|21(11)}} as the grounds for delegating safekeeping functions of a {{aifmdprov|depositary}}. What this means discussed in the recital to the [[AIFMD Delegated Regulation]] (sigh):


:(121) A depositary is allowed under certain circumstances to discharge itself of liability for the loss of financial instruments held in custody by a third party to which custody was delegated. For such liability discharge to be permitted '''''there must be an [[objective reason]] for contracting such discharge that is accepted by both the depositary and the [[AIF]] or the [[AIFM]] acting on behalf of the AIF'''''. An [[objective reason]] should be established for each discharge of liability taking into account the concrete circumstances in which custody has been delegated.
{{aifmd DR delegation explanation}}
 
:(122) When considering an [[objective reason]], the right balance should be established to ensure that the contractual discharge can be effectively relied upon if needed and that sufficient safeguards are put in place to avoid any misuse of the contractual discharge of liability by the depositary. The contractual discharge of liability should under no circumstances be used to circumvent the depositary’s liability requirements under Directive {{eudirective|2011|61|EU}}. '''''The depositary should demonstrate that it was forced by the specific circumstances to delegate custody to a third party. Contracting a discharge should be always in the best interest of the AIF or its investors, and the AIF or the AIFM acting on behalf of the AIF should make it explicit that they act in such best interest.''''' Examples of scenarios should indicate the situations where a depositary may be considered as not having other options but to delegate custody to third parties.

Latest revision as of 16:45, 18 April 2018

AIFMD Anatomy™

AIFMD, DR76

Article DR 76 of the AIFMD Delegated Regulation

Objective reasons for delegation

DR 76(1) The AIFM shall provide the competent authorities with a detailed description, explanation and evidence of the objective reasons for delegation. When assessing whether the entire delegation structure is based on objective reasons within the meaning of Article 20(1)(a) of Directive 2011/61/EU (EUR Lex) the following criteria shall be considered:

(a) optimising of business functions and processes;
(b) cost saving;
(c) expertise of the delegate in administration or in specific markets or investments;
(d) access of the delegate to global trading capabilities.

DR 76(2) Upon request by the competent authorities, an AIFM shall provide further explanations and provide documents proving that the entire delegation structure is based on objective reasons.

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Directive 2011/61/EU (EUR Lex) | Implementing regulation 231/2013 (EUR Lex)
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directive - 21 (depositary) | 21(4) (conflict management) | 21(8) (custody function) | 21(11) (custody delegation) | 21(12) (liability for loss of assets) | 21(13) (discharge of liability on delegation) | 21(14) (discharge of liability for Non-EU subcustodians) | 36 (depo-lite) | 36(1)
implementing regulation DR20 (Due diligence when appointing counterparties and prime brokers) | DR76 (objective reason) | DR89 (Safekeeping duties with regard to assets held in custody) | DR91 (reporting obligations for prime brokers) | DR98 (due diligence) | DR99 (segregation obligation) | DR100 (Loss of custody asset) |
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An objective reason is used un 21(11) as the grounds for delegating safekeeping functions of a depositary. What this means discussed in the recital to the AIFMD Delegated Regulation (sigh):

(121) A depositary is allowed under certain circumstances to discharge itself of liability for the loss of financial instruments held in custody by a third party to which custody was delegated. For such liability discharge to be permitted there must be an objective reason for contracting such discharge that is accepted by both the depositary and the AIF or the AIFM acting on behalf of the AIF. An objective reason should be established for each discharge of liability taking into account the concrete circumstances in which custody has been delegated.
(122) When considering an objective reason, the right balance should be established to ensure that the contractual discharge can be effectively relied upon if needed and that sufficient safeguards are put in place to avoid any misuse of the contractual discharge of liability by the depositary. The contractual discharge of liability should under no circumstances be used to circumvent the depositary’s liability requirements under Directive 2011/61/EU (EUR Lex). The depositary should demonstrate that it was forced by the specific circumstances to delegate custody to a third party. Contracting a discharge should be always in the best interest of the AIF or its investors, and the AIF or the AIFM acting on behalf of the AIF should make it explicit that they act in such best interest. Examples of scenarios should indicate the situations where a depositary may be considered as not having other options but to delegate custody to third parties.
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